Welcome to the fourth quarter 2015 IDEX Corporation Earnings Conference Call. [Operator Instructions]. With no further ado, I would like to turn the conference over to your host, Michael Yates, Chief Accounting Officer. Thank you, Mr. Yates. You may begin.

Michael Yates

Thank you, Tim. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX fourth quarter and full-year financial highlights. Last night, we issued a press release outlining our Company's financial and operating performance for the three- and 12-month periods ending December 31, 2015. The press release, along with the presentation of slides to be used during today's webcast, can be accessed on our Company's website at www.idexcorp.com.

Joining me today is Andy Silvernail, our Chairman and CEO and Heath Mitts, our Chief Financial Officer. The format for our call today is as follows. We will begin with Andy providing an overview of the fourth quarter and full-year financial results and then he will provide an update on what we're seeing in the world and discuss our capital deployment. He'll then walk you through the operating performance within each of our segments. And finally, we will wrap up with an outlook for the first quarter and full-year 2016.

Following our prepared remarks, we will then open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing toll-free number 877-660-6853 and entering conference ID 13620002. Or you may simply log on to the Company's homepage for a replay of the webcast.

As we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission.

With that, I will now turn the call over to our Chairman and CEO Andy Silvernail.

Andy Silvernail

Thanks, Mike. Good morning, everybody. I appreciate you joining us here for the fourth quarter call. A year ago when we were on this call, we talked about there being a difficult macro environment and the headwinds that really lay ahead for 2015. Those conditions played out and in fact played out a little bit more difficult than we had even anticipated.

The reasons for it, I think everybody is aware of and they certainly did not escape us. We had the strong U.S. dollar which hit us significantly in the year. The impact of energy prices that really rippled through much of the industrial economy. There were low crop prices that hit farm income and ultimately hit the ag market. And those factors really played out in two major markets, in the U.S. industrial and in the Chinese industrial markets. And I think the conditions that we're seeing here today that we saw in 2015 and the conditions that we expect to see in 2016 are really impacted by that.

That being said, the strength of our diversified and our balanced portfolio and the quality of our teams really demonstrated themselves here throughout the year. And I'm very proud of the execution of the teams through 2015 and our expectations are continuing to drive strong performance operationally in 2016.

We saw this play out in the numbers in a handful of ways. Year over year, our gross margin was up by 60 basis points and our op margin was up by 30 basis points. We had an 80-basis-point improvement in op margin and HST and an impressive 120-basis-point improvement in op margin and fire safety diversified.

We also generated $322 million of free cash flow. That was 114% conversion. And we got aggressive on restructuring in the back half of last year when we saw the softening happen in the second quarter. We spent about $11 million in restructuring and we're going to save about $12 million in total, $10 million incrementally in 2016.

The other part of our strategy that really plays itself through and, I think, allows us to differentiate in this kind of environment, is our value-centric approach, very thoughtful approach to capital deployment. In this past year, we completed 3 acquisitions. We spent about $200 million. We retired an $81 million euro note. We also divested a small product line, our Ismatec business in scientific fluidics and it had a pretax gain of about $18 million. And we bought back 2.8 million shares, spending just over $200 million to do so.

As I look at the year ahead, frankly, I think that 2016 is going to look a lot like 2015. The near term environment is one of slow growth overall, negative growth potentially. But our business fundamentals remain outstanding. If you look at the critical nature of our products, the large installed base and the high replacement costs, none of these things have changed. The moats around our businesses and our capability of driving very high returns in these businesses remains the same. And we will continue to focus on where we have strength in 2016 around operational improvement, around our positionings in the marketplace and around productivity and, of course, putting money to work intelligently for you, our shareholders.

Before I get into the results for the year and for the quarter, let me take a second and just tell you what we're seeing in our markets and in regions around the world. First on the market side, if you look at energy and chemical, everyone is painfully aware of the difficulties in the energy market. We certainly have felt the impact of that in our energy business, BAND-IT and sealing solutions. As you know, we don't have a lot of exposure upstream. We do have some, but the bigger impact now is really the rippling CapEx effects as it moves through the industrial economy.

The chemical side, we do expect it to be lower growth than it was in the year, but we still expect it to be a good news story in 2016. Industrial is really around the U.S. and China. If you look at industrial distribution in North America, it started softening in the second quarter of last year and that continued through the balance of the year. We do not think that that gets worse in 2016, but we do expect it to continue to be soft relative to history.

On the ag side, the ag markets have been hit hard. Overall, farm income is down and we certainly see that play out for the OEM orders in the marketplace. But our position is very niche-y with our Banjo brand. We have outstanding positions. It is a terrific business and we just continue to really make sure that we're in the right places when a rebound does happen.

Scientific fluidics and really the life-sciences businesses in general, continue to be a bright spot. They were in 2015 and we expect it again in 2016. And we really have terrific positioning in analytical instrumentation, bio and IBD. As I look at the new products that are coming to market, we know what our positioning looks like there and overall that is a good news story. Municipal is also a bright spot. We had low single-digit growth in 2015. We expect that momentum to continue into 2016 and we're seeing nice opportunities there also in terms of our ability to penetrate markets.

In terms of regionally, I really have touched on this already, but just quickly - North America, the story is really around two different worlds. One is industrial which is very soft; the other is municipal and life-sciences which is solid. Europe - Western Europe is actually stable and in decent shape. And we think the conditions there will remain the same in 2016.

And Asia which is really driven by China, there is no doubt that China is in an industrial recession, has been here for some time. We have certainly felt the pinch there. But I think it is important to note that we really view the long term opportunity in China with our business as being very good. And we have said this many times in the past; as things cycle downward, we often find ourselves being much more aggressive to be able to grow our business long term and take advantage of when others are being hesitant.

The other part to our strategy and how we really differentiate is around capital deployment. And I already noted some of the things that we have done in 2015. But we're going to continue this four-pronged strategy that we laid out a number of years ago.

So number one, we're going to fully fund organic growth and continue to make growth investments in good times and in challenging times. We're going to pay a consistent and robust dividend. We're going to buy back shares when we believe they are below intrinsic value. And we're going to execute on M&A. And we have done all of these things for the last handful of years and we're going to continue to ride that strategy.

On the organic growth front, we have continued to focus in on markets and customers where we think we can significantly differentiate and we can grow highly profitable business. Some examples of that that we saw in 2015 playing out in 2016 are the launch of our StrongArm and our rescue business and certainly the terrific success of our fluidic systems and life sciences.

In terms of dividends and share repurchase, we returned about 34% of net income last year. In terms of dividends, we grew that by 14% in 2015. And we also bought back 2.8 million shares for $210 million in 2015. You should expect to see trends around those two things remain pretty much the same in 2016.

On M&A, as I mentioned before, we bought 3 companies last year for about $200 million - Novatima [ph], Alfa Valvole and CiDRA Precision Services. And in 2016, we anticipate significantly exceeding this level. And so we've got a great balance sheet, we have terrific cash flows and we have a very nice overall pipeline. So this will be an important part of our strategy here going into this year.

With that, let's turn to the full-year results. I'm on slide 4. So, just as a reminder, these results exclude the impact of restructuring in both the full year and the fourth quarter and the gain of the sale of the Ismatec business that we had last year.

In 2015, we had revenue of $2 billion. That was down 6%, down 4% organically. We also had orders of $2 billion which was down 5%, down 2% organically. Orders and sales, they continue to be soft in 2015, really pressured by the impacts I mentioned before - the oil and gas and the ag markets and really the slowing overall of North American industrial. The good-news story here was op margin is 21%, up 30 basis points year over year. And, again, I'm very, very proud of the team's focus on driving productivity and margin expansion even in a tough top-line environment.

Free cash flow was a robust $322 million or 114% of net income. GAAP EPS for the year was $3.62 and adjusted EPS was $3.55. The 7% positive gain was really due to the restructuring actions and the gain of the sale of Ismatec. For the quarter orders and sales decreased 4% organically. Adjusted operating margin increased 40 basis points over the prior year to 21%. That was driven by strength in FMT and diversified which were up 40 and 280 basis points respectively.

Free cash flow was strong at $88 million or 130% of net income. And for the full year and for the quarter, please keep in mind that we had a $2.6 million benefit or about $0.03 a share income tax, from the decrease in the Italian statutory rate in late December. So we ended up with $0.94 a share which was up 6% from prior year.

Okay, let's turn to the segment discussion. I'm on slide 5. And as always, we will start with fluid metering. FMT closed out the year with a 1% increase in organic orders in Q4 and a 1% decline in organic orders for the full year. Sales were down 5% for the quarter and 2% for the full year. Op margin was up 40 basis points in the quarter, but down a modest 20 basis points to 24.6% for the year. And really very, very solid execution here for our energy business and driving productivity and continuing to keep very strong margins in the segment.

In water services, the North American and the European markets were decent. Low single-digit growth and we expect that to play out again in 2016. And this is a place where we continue to see really great innovation driving those marketplaces and nice opportunities in 2016 and beyond. I have talked a lot about already the industrial markets. They were a significant headwind for FMT in 2015. Very low CapEx spending on projects really in the impact of oil and gas spending rippling through that marketplace.

The top-line pressures, we expect them to continue, but they are flattening out. They are not going to further deteriorate in 2016 and we will continue to drive productivity and margin expansion in the segment.

I'm very pleased with the performance of our recent acquisition, Alfa Valvole. The integration has gone well and we anticipate solid performance in 2016. In our energy business, there was some top-line softness really that impacted upstream oil and gas. But it was offset by nice efficiency gains and great margin expansion. In 2016, there are similar headwinds and we also have a little bit of a truck business in terms of our mobile meters, will be a little bit softer, but should be offset nicely by our aviation business.

And finally, in ag, I have talked about this enough already, but we continue - we do believe it is going to be soft in 2016, but certainly do expect a bottom in this year. All right. Let me move to health and science. I'm on slide 6. So, the overall results in the quarter for health and science were really driven by a strength in life science markets, offset by weakness in the industrial. And there was a little bit of a poor mix impact here. So, that was the story for the fourth quarter, but also for the year. So, strong life sciences and scientific and weaker on the industrial side.

In the fourth quarter orders were down 6% and sales were down 2% and for the year HST had a 2% decline in orders and a 1% decline in sales. Margins decreased 60 basis point in the quarter, but they were up nicely 80 basis points for the year.

Scientific fluidics, the overall market place here is strong and we expect to continue in 2016. End-market demand, whether it is analytical instrumentation, bio or IVD, all remain nicely positive. And, again, we've got really nice positioning and innovation in this segment of our market.

Sealing solutions, it is really a tale of two sides. One is the oil and gas business which has been soft; and the other which is their penetration into the semiconductor market which has been good. This certainly has been a negative mix, where we're more profitable on the oil and gas side than we're in semi, so that has played itself out a bit. And really, the trends here that we talked about remain the same relative to our expectations in 2016. You know, a tough industrial market, but an improving landscape on the scientific side.

Optics and photonics were stable in the quarter. End markets in terms of industrial and laser optics were weaker, offset by strength in life sciences. Profitability has been a good news story there in 2015 and should be again in 2016. HST industrial looks a lot like FMT. The stories are very, very similar. We have great positioning here. We've driven nice productivity, but we certainly are feeling the headwinds of the overall industrial landscape.

Material process, globally large capital projects were really put on hold in 2015. And we don't expect a big rebound in 2016, although we do have nice targeted projects that we're working on in our ability to make our own luck here in this business.

All right. I'm on our last segment, diversified. I'm on slide 7. Now remember, this segment has really had the biggest swings that we've seen from some large impacts of orders and sales here over the last year, really driven by our fire trailer sales and our large rescue order and then some softness on the BAND-IT side due to oil and gas.

Organic orders were down 6% for the full year and we had a 10% decline in organic sales. Operating margins improved nicely in the fourth quarter, up 280 basis points; and for the year, up 120 basis points. So, another impressive result, although admittedly coming off a soft comp here in the fourth quarter 2014.

Dispensing had excellent growth in 2015. The core markets in North America, Western Europe and India all had impressive growth in the year and we expect that to continue in 2016. Sales of our X-SMART product have been terrific and they are driving top-line and bottom-line improvement and the overall new product pipeline in dispensing is very robust.

In terms of fire suppression, the markets in North America and the UK have had solid performance and we expect stability in 2016. The rest of the world remains pretty choppy. If you look at the emerging markets and the budget tightness across those emerging markets for fire, that is going to be tight and that also impacts rescue. So, in our rescue business, had a very strong North American sales from our eDRAULIC 2.0 and the launch of StrongArm. But, this is our most global business and has really been impacted the most by the tight budgets in emerging markets.

And finally, BAND-IT. BAND-IT has been a profit engine for this Company, continues to be. The impact from oil and gas were tough for BAND-IT in the year, but they continue to have strength on the transportation business. And this is a business that we'll continue to invest in and grow aggressively over time.

All right. I'm going to - two more slides here. We will talk about overall 2016 guidance and then a few points on the quarter. I'm on slide 8. So, for the year, we really expect organic growth to be down 1% to plus 1% and that is fundamentally a macro call looking at the markets that we play in. We would expect to outgrow - outgrow our markets, but we do expect there to be relative softness throughout 2016.

If you look on both sides of this bracketing, down one to up one, it is about a $0.10 headwind to a $0.07 tailwind, depending upon which side of the ledger we end up on. In terms of FX, we're primarily impacted by fluctuations in the euro, the Canadian dollar and the pound. But we kind of put all of that into the mix, the impact in 2016 is much more modest than the impact was in 2015. This year, we expect about a $17 million impact at today's rate which is about a $0.03 headwind.

We do expect the acquisitions of Novatima, Alfa and CiDRA to add nicely to the business. But remember, that will be offset to some degree by the sale of the Ismatec business. The net of this or the gross would have been up about $0.05, $0.055 in the year, but offsetting Ismatec gets to about $0.04 of positive impact and $21 million of sales for the year.

In terms of tax rate, we expect that come in at about 28.5%. That will be up over this prior year because of the impact of the changes - the one-time changes in the Italian statutory rate that we have the benefits of. So this will be about a $0.03 headwind versus 2015. We will continue our share buyback program. We expect to repurchase about 2% of our shares for the year and so that will add about $0.07 in 2016. And the impact of our restructuring gets us about $0.10 of benefit in 2016.

Our productivity will fully offset our wage and material inflation to about a $0.03 benefit. But as I mentioned before, we're going to continue to invest. So even in difficult times, we need to make the call and continue to invest in growth opportunities and we're going to do that again this year. And so that can be up to a $0.10 impact for the year.

All right. I'm on slide 9, our final slide. Let me talk about Q1 and a few more items around the full-year guidance. For Q1, we're estimating $0.80 to $0.82, with operating margins of approximately 20%. The Q1 tax rate will be 29% and we estimate that to be about a 1% top-line sales impact from FX.

All right, a couple more items for you for the full year. For the full-year revenue growth, as I mentioned, we expect negative 1% to positive 1% organic growth and full year operating margin to exceed 21%. Top-line FX impact is about 1%, as I mentioned before, $0.03 of pressure. Full-year CapEx will be about $50 million. Free cash flow will be another strong year, 120% of net income. And once again, we expect to repurchase about 2% of our shares. As always, please remember that any of the guidance excludes the impact of M&A or the costs and charges associated with acquisitions.

So with that, Tim, let me stop here and turn it over to questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Mike Halloran of Robert W. Baird. Please proceed with your question.

Mike Halloran

Let's start with the guidance. Could you just talk a little bit about how you think the cadence runs through the year Andy? It feels like it might be slightly back-half loaded. Maybe you could just talk about what your underlying assumptions are for improvement in the environment as you work for the year versus comps versus what you see in your order pipeline, things like that.

Andy Silvernail

Sure. Well, first of all, at your conference last year we talked a lot about the realities of the first half of the year. And I think, if I recall saying, we said think the year is going to be negative 2% to plus 2%. And so as we look at it today, we think the year is now negative 1% to plus 1%, so it has tightened a little bit. In terms of how it flows, we knew that the year the tougher comps were going to come into the first quarter. And also, the first quarter just has more general expenses than you see in other parts of the year and that is a pretty typical thing overall. We're not calling for a big second-half rebound, Mike.

There is some modest rebound expected, but it is not huge. And so, we're mindful that we could go through all of 2016 with it being a tough year and that is our expectation. And you know, we typically go into these things more cautious than not. As we have said many, many times in the past, we're a business that can respond very rapidly on the upside. We don't need a lot of direct labor to increase - or to tackle the increasing order book. At the same time, our high-variable margins, we want to make sure that we don't have a cost structure that is too heavy going into more tough times. Heath, do you want to touch on that?

Heath Mitts

Sure. Mike, as normal, the Q1 earnings is typically lower than the rest of the year on comparable sales, just because of some Q1-related expenses mainly around stock compensation and otherwise. So, that is not uncommon for us. There is some natural seasonality from Q1 to Q2. And then we just know where some projects line up in terms of certain elements of the business and the timing of those.

So, as we put together the forecast for the year and our budgets for the year, that translated into this guidance. All of that was taken into consideration in terms going out with the lower Q1 relative to where we were confident that the rest of the quarters will come in alignment.

Mike Halloran

And are you suggesting, then, that if you go to the negative 1% organic growth and compare that to the 1% at the high end, that the low end doesn't really assume any real fundamental improvement as you work through the year and the high end assumes some modest improvement in some of those stressed markets?

Heath Mitts

I think that is a fair - I mean, obviously we touch a lot of different end markets with our diversified portfolio, but I think that is a fair assumption.

Mike Halloran

And then on the acquisition side, obviously some more bullish comments there than you have made in the last couple years. Maybe talk about what gives you the confidence. What kind of things are you seeing in the pipeline? Are these opportunities that have just been gestating over time here that just feel like they are coming to the finish line? Is it that the market has gotten a little more conducive? Maybe just talk about that confidence factor.

Heath Mitts

No real meaningful changes in the M&A market. I don't see anything that is materially different than it has been in the last 12 months or so. It really comes down to we've got pretty good visibility to what's in our pipeline. We have had a lot of irons in the fire and we feel good about where some things are moving. At the same time, things break. So, we have been to the altar many times, but we feel pretty darn good about where we stand right now. And we think that this will be a good year for M&A for us.

Operator

Our next question comes from the line of Allison Poliniak of Wells Fargo. Please proceed with your question.

Allison Poliniak

Just Andy, curious - I know you just touched on the acquisitions, but trying to understand that pipeline a little bit more. You said there was no changes to the market. I mean, is there anything fundamentally that you've done differently over the past few years that maybe built that pipeline up with a little bit more quality-type deals for you?

Andy Silvernail

Yes, Allison, two years ago - I can't remember if it was this call two years ago, but right around two years ago we talked about the fact that we were putting more resource across the Company toward M&A. And that has certainly been - that has certainly helped play out. And so, if you just kind of look at what came last year, $200 million, I think we will certainly beat the $200 million this year in capital deployment.

I think it really comes down to where we're putting our time and our effort. And we're talking about things that look like us. These are acquisitions that are squarely down our - the middle of our strike zone. And so I think it is time, it's focus and it's some things just playing themselves to the pipeline. You guys know how this works. This is - I wish it were a science, but it is a mix between art and science and it is playing out pretty well right now.

Allison Poliniak

And then, just touching on energy, obviously at $30 here for crude, it sort of sounds like energy is at least stabilized, obviously not getting better for you and the industrial sort of ripple effect. But if we see at sort of this low level, would you expect another step down in terms of some of that spending and constraints there?

Andy Silvernail

I don't think so for us, just because knowing where we play in the different parts of the market, I think the thing that has been surprising to us and a lot of folks, I think is the overall ripple effect that we mentioned and you mentioned here just a second ago. It has played out across the industrial economy more than I think people had expected.

But in terms of it being a further step down at the current rates, I don't think so. As we look at the projects that we work on, say, Toptech and Toptech has a pretty good view of kind of larger project use. As we look at BAND-IT which is the more upstream stuff, those things have been hit already. And you can kind of follow the activity that drives that. But as you know, the vast majority of our business is midstream.

And so the only kind of incremental negative that I see for us and I think this is really unique to us, is in our liquid controls business. We touch a lot of mobile applications that are on trucks and that truck build is going to come down, we think, in 2016, but offset, I think, reasonably by where we sit in the aviation which - where we have a good share, but there is a lot of penetration to go. So net net, Allison, I think we're - at this level, I don't think it changes very much.

Operator

Our next question comes from the line of Steven Winoker of Bernstein. Please proceed with your question.

Steven Winoker

Can we just put a finer point on 1Q? Is the calculation roughly about negative 1.5% organic? Is that with the implied - that is sort of my math is sort of getting me that range. What are you guys suggesting?

Heath Mitts

I would say you are in the ballpark. We're looking at low single-digit organic, but not significantly different on an absolute sales basis from where Q4 came in.

Steven Winoker

Okay. And then when you say you are not assuming a second-half ramp, but clearly there must be some here, is there anything in that assumption base about something getting distinctly better during the year? Or is this just comp-based when you are running the comps through it that are getting you to that new range?

Heath Mitts

Let me clarify for my comment earlier. We do have some seasonality in the business and certainly the uptick from Q1 to Q2 is quite normal in our business. And then, there is generally project activity that takes place, some of which is already booked in our backlog for the back half of the year over and above kind of what we say is the daily book and bill rate. So there is some sequential uptick. Albeit, no doubt on a year-over-year basis, the comps get a lot easier after we anniversary the first quarter.

Andy Silvernail

That's right.

Steven Winoker

Okay. And just so I'm clear in terms of the current exposure, if I kind of work across the whole portfolio and add up those things that are kind of being hit cyclically that you went through, so - and, please, I'm sure my numbers will be off here; I would love to be corrected. But industrial, I've got it at about 18% to 20% of the whole portfolio; energy, oil and gas, like, 11% to 15%; and ag, another 2%. Is it something like - that gets me about a third of the portfolio that is being hit right now. Where am I wrong?

Andy Silvernail

I think be more general. Let's generalize it a little bit here. So if you - and then I will dive back in, Steve. So, about 30% of the portfolio is life sciences and municipal and about 70% is industrially based. And if you start to segment the industrially based pieces, the - certainly, you have got it about right on the energy which is 11% to 15%. That is a good number in there of the total portfolio. And the ag piece is bigger than that. The ag piece is kind of 4% or 5% of the overall business. And then you start to slice it down by chemical, by general industrial, et cetera, et cetera. That is a pretty good picture.

So I think the pieces that are being hit hard, that have been hit hard, are exactly what you just talked about. But you also have the other pieces that are also kind of hitting the industrial landscape that are soft, too. So, that is why as I kind of look at it and I say what really ends up happening in 20 - this year is the strength in 2016 is life sciences and municipal offset some of the negative impact in the more industrial pieces you called out and getting us to that negative 1% to plus 1%.

Steven Winoker

And then maybe just sneaking in one on that M&A orientation, as you are looking at that pipeline right now, is the category that these deals are in - first of all, are you able to go larger because of the dislocations in the market? And are you leaning toward any particular segment more so or any kind of characteristic in terms of cyclicality? Any guidance on that front would be helpful.

Andy Silvernail

You bet. So, let me kind of take the back half of that question first which is if you look at our funnel, it is actually pretty well spread across the three segments which we're excited about. We have got stuff in all three segments that we're looking at and we can certainly see things breaking this year across the three.

In terms of cyclicality, non-cyclical, we don't have a huge ambition to increase cyclicality a lot. We have done a lot over the last decade to moderate that. And so that strategy will continue generally.

In terms of overall pricing in what you're seeing, certainly some of the industrial pricing is starting to come down. It is coming down a little bit; it's still not coming down a lot. Money is still cheap in a lot of places and there is still competition there. The scientific businesses certainly have more robust multiples than the industrial-based businesses. Did I capture everything for you, Steve?

Steven Winoker

Everything except willingness to go larger on the acquisition themselves.

Andy Silvernail

Okay. You know, our sweet spot has always been that kind of $30 million, $50 million to $250 million. That is our sweet spot. And the reality is there just aren't that many things that are north of $0.5 billion that fit into our strategy. That being said, there are some and we absolutely would be willing to, if we could - if we had a view of being able to create significant value. For us, we start and stop with the idea of are we going to create significant value for shareholders to take on incremental risk. We have got a great business here. And so we're not going to bring on foolish risk via M&A and dilute our portfolio. We would much rather be more thoughtful and make those kind of dead-center acquisitions. But there are a few things that are bigger than we would do, Steve.

Operator

Our next question comes from the line of Nathan Jones of Stifel. Please proceed with your question.

Nathan Jones

I'm going to beat the M&A horse a little bit more. If you think a little bit longer term than just how you are going to progress with M&A in 2016, you guys have done obviously a very good job over the last few years. FMT margins mid-20s, FST margins mid-20s, health and science margins up into the low 20s. When do you start thinking about potentially adding another leg to the portfolio where you can use the same kind of techniques you have over the last several years to drive margins from something that might start at a lower base to create value?

Andy Silvernail

Well, I think, first of all, Nathan, we have a lot of room kind of squarely within the businesses that we have today and near-adjacencies. If I look at our businesses and say, could we double the size of IDEX organically plus acquisitions that are right in our dead-center and near-adjacent, absolutely we can do that. And so, I'm not going to say we would never add another leg, but it is not the first priority.

There certainly are a lot of things we'd look at over time. We have analyzed a lot of industries and a lot of subsegments of industries. And there are some things that are very attractive that absolutely fit our business model and our operating capability. But, I don't feel the need to go jump out at those. There are some things that if they became available at reasonable prices that we would do, but they are not priority one.

Nathan Jones

Okay, that is fair. And obviously lower risk if you are sticking to near-adjacencies.

Andy Silvernail

Yes.

Nathan Jones

You did mention significantly higher plan on spending and M&A. I kind of did some back-of-the-envelope math to get you to an upper end, maybe, of leverage range after dividends and $100 million of share repurchases that you implied. I'm getting, like, $500 million, $600 million of available capital in 2016. Is that somewhere in the ballpark of what you are thinking about, knowing that you can't predict timing?

Heath Mitts

I think that is a fair number. I mean, we could probably stretch a little bit more than that in this environment, given where our balance sheet sits today. But you are talking about with the $100 million plus value, you're talking about a $750 million total deployment. I think that is probably fair without getting too uncomfortable.

Andy Silvernail

Yes. Just to be clear, Nathan, that is our capacity, not necessarily our expectation.

Heath Mitts

Correct.

Nathan Jones

Do you have an expectation?

Heath Mitts

Significantly above last year.

Nathan Jones

I figured that is what I would get. If I could just slip one in on China, you said China is no doubt in an industrial recession. Can you give us a little bit more color about what your people on the ground are seeing over there and what your expectations for the progression of that recession is in China?

Heath Mitts

Upwards of two years ago, we started having this conversation with you guys about the softness of what we saw on the ground compared to what was being said everywhere. And the real issue is overcapacity, overbuilding. So if you look at almost any industrial sector in the Chinese economy, there is overcapacity in one way or another and they are going to have to grow into that capacity.

And so I think 2016 is going to look a lot like 2015 for China. But at the same time, we're taking a longer view there. We - China is not an easy place to do business, but it is a place that we make a lot of money and long term is a place that we want to be. So we're going to continue to invest. But we and everybody else are going to have to work through the overcapacity issues over the next 12, 24 months.

Operator

Our next question comes from the line of Matt McConnell of RBC Capital Markets. Please proceed with your question.

Matt McConnell

Andy, just to follow-up on your answer to an earlier question, you said you had M&A opportunities in all three segments. I know fire safety and diversified, you have such high share; it has not really been an M&A focus. Is it somewhere where you will see opportunities in adjacencies? Or what would be the M&A focus there?

Andy Silvernail

You know, there are some really nice adjacencies in diversified. And if I look at the fire business, if I look at BAND-IT, we actually have put more resource around some of those areas in the last 12, 18 months and uncovered some really nice adjacencies that have the same kind of fundamental economics and leverage our strengths. And so, we would stay very close to home; there is no doubt about it. But there are some things that are out there that are pretty nice.

Matt McConnell

And then on the growth priorities for 2016, you are investing $0.03 to $0.10. So, what are you prioritizing there? And maybe what have you had to scale back, just reflecting that we're in the second year of a pretty tough environment, down organic revenues this year? What are some of the priorities that you would want to highlight? And maybe, what is - how do you get trimmed back a little bit?

Andy Silvernail

Matt, let me kind of answer that first by - from a high-level perspective and then come down to more specifics. As you know, our business model really relies on very, very aggressive segmentation. We're continually segmenting and re-segmenting around customers or products and markets where we think the profit pools exist. And so if you look over the last couple of years and you actually look at what we've done, we have moved our revenue to higher-margin profit pools and we've taken out structural costs that are really unnecessary to continue to move that margin, drive the returns and move growth in the places that we think are valuable. And then, frankly, we have taken out - probably in the last two years, we have probably walked away from, I don't know, $40 million, $50 million of revenue. Is that a fair number?

Heath Mitts

I think, yes, over the last two years, the number is around $50 million that we have walked away from.

Andy Silvernail

Yes, we're actively paring it, but we don't think we have differentiation and we don't think we have a long term strategic advantage. And we can move those resources. So, that is just part of what we do year in and year out and we will do it again this year. This year, we will probably pare back a percent of revenue, if you look at what we'll actually take out of the business that we think is nonproductive revenue and move those resources to other places.

So, where are we moving it? It is really - we're really moving our resources all around our franchises. If I look at the franchises that we have in IDEX, we have a positive displacement pump franchise around biking and around [indiscernible] that is outstanding. I mean, really, really outstanding. Those two businesses are dang near 15% of total revenue, more than that if it's a percentage of total profits. We're going to continue to invest in there, even though their markets are a little bit rough right now.

But if you look at the three or four new products that are going to get launched this year and next year under those franchises, they are going to be a big deal. And also certainly market development around both of those pieces of that franchise.

We also have a terrific franchise around scientific fluidics and the optical components that match that. So, the optical fluidic engine that we talked about for a long time. We're making some pretty good-sized, long term bets in that franchise that, frankly, we're not going to see anything from for two or three years that - but we see where the market is going and we see some big, big upside moves here where it is going to take market and product development. So, we're certainly putting some resource there around that business.

Our energy franchise, if you look at liquid control, that brand in particular, that is an absolutely terrific brand. We continue to invest there, even in the face of the downturn, because we see the data loop going in a major way. It's moving from hardware and basic software to a data loop and we need to be able to close that data loop to continue to grow that business. We're investing there.

And then, we're making some pretty big bets in India and in China. So, in India, we have - as we have built a number of new facilities since 2011, we now - we have built 2 facilities since 2011. We have grown that business very aggressively and we have a position where we're a local player in the market, where we built a terrific business and can grow it pretty fast.

And then in China, as we mentioned before, when things are difficult, this is when you can actually make some investments that are at a much bigger discount then you could have three years ago. But I think 10 years from now, is the Chinese market going to be more important for IDEX or less important for IDEX? It is going to be more important. So we need to make those investments there.

Operator

Our next question comes from the line of Charlie Brady of SunTrust Robinson Humphrey. Please proceed with your question.

Charlie Brady

Can we focus on dispensing for a second? It sounds like the growth was pretty solid there. Can you just give a little more granularity on the parts of that business where you are seeing that growth beyond just the broad geographical statements?

Andy Silvernail

Sure, you that. It's actually - there is strength in three specific things and two are market related, one is product related. So, on the market side, as you know, over the last four or five years, the competitive dynamic in the U.S. market has - we have really positioned ourselves extremely well. And as the business - the overall business has come back over the last two or three years, our share position has grown meaningfully.

And not just big boxes, right? Everyone kind of focuses on big boxes, but there are a lot of other outlets that are very important to the marketplace. And through new product development and having things that are better overall price positioning for that middle market, we have done well there and we have continued to take share in the big-box arena. Western Europe, this is a more - I apologize, this is just more of a general statement. The market improvement in Western Europe, we have taken advantage of that.

And then finally, X-SMART. X-SMART, as you know, we launched out of India. We developed and launched out of India. It has certainly exceeded our expectations over the last few years and it is a product that is going to move its way into the advanced markets; there is no doubt about it. And we're going to launch here later this year. As you know, the X-SMART was kind of a lower price point, very high-capability automatic dispenser that really created a market. The market was manual and now we have a product that has really brought the automatic capability into that manual And we're going to launch a mid-tier product here in - later this year that we think is going to be just as exciting.

Operator

Our next question comes from the line of Bhupender Bohra of Jefferies. Please proceed with your question.

Bhupender Bohra

I believe you spoke about first quarter being weak on the core sales. How should we think about margins? I believe you gave guidance of 20% - I believe it is 21% plus. How should we think about in terms of looking at the productivity, pricing, of the quarters? Is it like first-half or the second-half heavy kind of thing? Thanks.

Heath Mitts

Our pricing continues to be very IDEX-like in nature in terms of getting roughly, on a gross basis, about a point of price. Most of our price increases across the businesses go out in the late fall or early Q1. So we get a pretty good sense of what's going to stick on that by the time that we provide this guidance. And that is consistent with where we sit today.

So, there's no doubt that benefits us. In terms of the productivity, as you noticed, as you probably noted on the bridge, that has been a good story. The teams have done an excellent job of being able to offset inflationary concerns. Most of our inflation comes via the labor inflation across the board.

We have been able to hold off on a lot of material input. Inflationary pressures and the productivity initiatives that will run through the P&L are both a combination of carryover activities that we get the full your benefit from in 2016, as well as new initiatives that are continuously underway. So, we feel pretty good about our ability to, even in a flat organic growth environment, with the current construct of the portfolio, to be able to hold and expand overall operating margins.

Bhupender Bohra

And the other question I had on the orders, if you can just give us some color how do you - are you seeing orders in the first January basically? And how do you exit December?

Heath Mitts

Well, December is always a full-year push with the holidays and everything else. No different than any other year. We ended the year in, I would say, fine fashion. It is never as good as you quite want it to be and January is off to a reasonable start. But there is no doubt that, just as the color that Andy has provided throughout this call, there are certain end markets that are more pressured than others. And the areas that we think are going to be a little bit more robust around municipal and some of the things that are around life sciences, those areas have continued to be aligned with our guidance and continue to be a little bit stronger.

So, this is going to be - when you are sitting at flat organic revenue growth, it is a bit of a slugfest throughout the year and we continue to operate in that mode, knowing that we've got to get more aggressive with productivity and in other areas where we can control our own destiny, knowing that the market support is going to be fairly volatile throughout the year.

Operator

Our next question comes from the line of Joe Radigan of KeyBanc. Please proceed with your question.

Joe Radigan

A couple questions on HST. It sounds like scientific fluidics is okay. How are channel inventories there? Because in the past, that has caused one- or two quarter pauses in growth every once in a while. And then, is it reasonable to assume sort of mid-single-digit industry growth there based on the content you have won? Or is this - I know you said you are making investments. Is that growth more long term, two or three years out?

Heath Mitts

Specific to channel inventories, don't necessarily see anything today that has me particularly concerned. There are a bunch of product launches that happened in the first part of this year, meaning our customers are launching. Right? So we will keep a pretty close eye on that.

In terms of the investment cycle that I mentioned before, we opted, coming out of our strategic planning cycle this year, to go longer on a particular product innovation that is - it is going to take two or three years to develop. And it is a longer bet than we have historically made in some areas. But if I look back at some of the bigger bets and bigger successes, that is where they have to - that is how they pay off and that is how you have to go about them.

So, what we're looking at for 2016 and 2017 is much more around kind of our bread-and-butter product development and market development. And as you get into 2018 and 2019, we expect to see some of these bigger things come into play.

Joe Radigan

Okay. And then do you expect any favorable impact from the budget agreements? Specifically, the NIH budget, I think, increased the largest, at least on percentage terms, in 10 or 12 years. The medical device tax, I think, was - at least there was a moratorium on it. Does that benefit you or is that not really that correlated to your business?

Andy Silvernail

No, the medical device tax, we're not going to see any impact, I don't think, from there. On the NIH side, just as we said when the NIH budget got crimped here a few years ago, the dollars themselves and how those dollars are spent are really actually not that big. But what they do is they really ripple through the industry and they start to drive innovation to the industry.

So, when you are talking about an NIH budget that is - what is it, $35 billion, $36 billion, somewhere in that range, relative to the size of the life science industry, that is pretty small. But it does certainly drive innovation and there is a ripple effect. So the net of it is, it certainly is good news. But we don't get impacted by it really directly. It is more indirect and it will take a little bit of time.

Joe Radigan

Okay. And then lastly Andy, can you just elaborate a little bit more on what you are seeing at BAND-IT outside of energy in terms of daily order rate? Have they weakened through the end of the year, early this year? Or, just what you are seeing there.

Andy Silvernail

It is pretty flat. It is pretty flat generally. I would say that the transportation side continues to be good. As you know, we got on a whole series of product launches here a few years ago and that is playing itself out nicely. And we have some nice opportunities, too, to get on some new business. But what I will call the general industrial stuff, the stuff that we look at as the canary in the coal mine, pretty flat.

Operator

Our next question comes from the line of Brian Konigsberg of Vertical Research Partners. Please proceed with your question.

Brian Konigsberg

Just coming back to the commentary on price and cost, I guess maybe I just don't quite understand the bridge that you are coming to with the $0.03. So if you're saying you get a point of price, materials are - the input prices should be coming down, you are saying kind of flattish. Productivity is offsetting bureaucratic inflation. Why wouldn't price fall through at a much more meaningful rate? If you just want a point of price, that is kind of like almost $.20, not $0.03.

Heath Mitts

Let me just clarify. On our bridge, prices is part of what we look at in terms of organic volume as well. So, when we're looking at the productivity side of things, we go into any given year with somewhere between $20 million to $25 million of inflationary pressures, two-thirds of which is labor costs, labor inflation. So, when we're looking at productivity initiatives, we're really looking at how do we offset those inflationary pressures. And then price, to your point, would then fall through. But that is embedded as part of our organic calculation.

Brian Konigsberg

But you are saying productivity should effectively offset that $20 million to $25 million of inflation?

Heath Mitts

Correct.

Andy Silvernail

Of wage and material.

Heath Mitts

Wage, material and burden inflation.

Brian Konigsberg

Right, so what is left is just price. I mean, just in the bridge.

Andy Silvernail

No, no, I think you are missing what Heath is saying. If you go to the organic count which is that first line item of negative 10% to plus 7%, price is going to be in that side of the organic calculation.

Heath Mitts

Correct.

Brian Konigsberg

Okay, understood. And then just on the restructuring, the $10 million, can you just talk about how that flows through by segment? And, to the extent you see incremental weakness in 2016, that is there obvious places to address if the downside scenario does take place?

Andy Silvernail

Certainly. We got fairly aggressive in the back half of 2015 to the numbers that we have noted here and about the $12 million that is the 2016 impact. Obviously, we received a little bit of benefit towards the latter half of 2015 as well. But the $12 million which is about $0.10 a share, is the 2016 impact from those completed actions.

I would say we're a lot - we're ready if the market ticks down. There are also - some of that is just going to be volume-based cuts that we made along those lines. We're also, at any given time, in good times or bad, have a handful of smaller facility consolidation-type activities that generally take anywhere from six to 18 months to complete, depending upon how complicated it is. And we would be doing those anyway. And you can expect in 2016 that that is happening.

Operator

Our next question comes from the line of Jim Giannakouros of Oppenheimer. Please proceed with your question.

Jim Giannakouros

Sorry if I didn't get this, but outside of M&A which the conversation has been exhausted which timing and magnitude of spend often comes to you or is determined by outside forces a bit, how should we be thinking about your view of flexing up or down that internal growth spend that you guided to $0.03 to $0.10 headwind in EPS? Meaning, are there some projects that are in the maybe column and not necessarily in your 2016 plans? Or, it is all a go and that variability between the $0.03 and $0.10 really has to do with top-line implications and the related leverage?

Andy Silvernail

Yes, Jim, some of this spent and running. And then some of it, if we saw the world deteriorate, we could hold back on. And those are things that are headcount related that haven't been committed yet. So, we do have some flexibility on that, but generally, if the markets hold up, we absolutely want to make those. And we don't want to delay that spend. But we have some flexibility.

Jim Giannakouros

And, again, if M&A doesn't map as you think it will in 2016, what is the priority ranking between the other uses of cash? Internal investments is up there. Like you said, you maybe get it more aggressive when others received. Or should we be thinking that you get more aggressive on share buybacks would be the number two?

Andy Silvernail

Yes, I think from an organic growth and a dividend perspective, those are pretty dialed in. So, I don't see anything right now that would say to me, go take a large chunk of the rest of the free cash flow and balance sheet capacity to go do that. I think we're very dialed in there. It really would be around looking at where we trade relative to intrinsic value.

And as we have talked about in the past, we have got a pretty robust process of how we think about share repurchase. So we put the work into estimating what we think the Company is worth. And when the Company is trading at an increasing discount to that, we will increase our share repurchase.

But that being said, strategic M&A is absolutely the first thing we want to do with the excess cash. That improves our positioning. It allows us to compound capital over time and grow the business. But, in the absence of that, if we're at a discount to intrinsic value, you should expect to see us ramp up share repurchase.

Operator

Our next question comes from the line of Walter Liptak of Seaport Global. Please proceed with your question.

Walter Liptak

I wanted to ask about your midstream business and - which is really more like downstream, because you are taking out - pumps and meters, I guess, as they are going from refiners to retailers, if I'm not mistaken. But I wondered about your comments on low project CapEx. And this the case of - kind of like the majors or the oil companies throwing out the baby with the bath water and cutting those downstream CapEx projects.

Andy Silvernail

Yes, I think, Walt, what you are seeing is that ripple effect of what would have been [indiscernible] CapEx cut upstream and how that has filtered itself through the rest of the value stream. And so, you are seeing it play itself out. That being said, with the decrease in price - and if we see an increase in demand at all, that will drive that cycle the other way. It will drive the infrastructure cycle around distribution the other way. But right now, we're certainly seeing it in the short term the negative ripple effects of people being very careful with capital.

Operator

Our next question comes from the line of Matt Summerville of Alembic Global Advisors. Please proceed with your question.

Matt Summerville

Just a couple quick ones. With respect to SSD orders down 10%, you look at revenue coming in at $98 million orders $97 million, those are sort of the lowest numbers since some time in, like, 2011 as I recollect. And I know there have been comps and lumpiness along the way. But if sort of the dispensing piece - which is maybe 25%, 30% of the segment - is doing good, as you talk about, just how bad are the other pieces?

Andy Silvernail

Well, BAND-IT and rescue have both been hit by the forces that we have talked about. And we had the very large trailer order of fire. So the base business of fire is actually up kind of single digits, low to mid-single digits. But we had that really large bulk of business over an 18-month period of time of trailers that is much smaller now. And I can't remember exactly how large it was, but I want to say that was a $20 million chunk of business at one point.

Heath Mitts

At one point. It has normalize for sure.

Andy Silvernail

Yes. So, really, it is really rescue and BAND-IT on a - if I kind of look at kind of their base business that have been hit by this, with dispensing doing well and then the trailer business that is gone, but the base business of fire - not gone, but smaller. But the base business of fire is doing well.

Matt Summerville

And then with respect to just the orders in HST, if you can parse kind of the life sciences pieces of the business and then what we can just called the general industrial pieces of the business, how would you characterize incoming order rates in those two groups versus the minus 6% that you reported?

Andy Silvernail

The industrial-facing side has been more challenged. The sealing side that has oil and gas exposure has gotten whacked. MBT, just in terms of the project business, has been soft. Those are kind of - and then I would say the micro pump gas which is the other parts of - that I would put in industrial, look a lot like FMT with strength in life science.

Matt Summerville

Great. And then just - I guess one more follow-up. As you look at the general industrial pieces of your business, whether it be FMT, whether it be an HST or some of the things that BAND-IT touches, do you get the sense that your customers in distribution are done adjusting their inventory levels? Did that get, quote, sort of cleaned up in the latter part of 2015 or are you seeing that continue into early 2016, thus adding to - it is somewhat of a - I will call it a little bit of a cautious view overall?

Andy Silvernail

Yes, I said in the last couple of calls, this question about destocking has come up. And what I have said, I still hold to which is we don't have as much exposure to what I will call commodity distributors. We're much more playing with value-added distributors, carry much less overall safety stock. So, for us anyway, the issue has been end-market demand and it plays itself pretty rapidly through distribution.

That being said, we have seen this many times. In these types of environments, everyone does get tighter around inventory. And if you see an uptick, you will see both a demand uptick and, for us anyway, I will call it a modest restocking uptick. But it's not big for us like it is for a lot of the folks who sell into the more commodity-like industrial distribution.

Operator

Our next question comes from the line of Joe Giordano of Cowen and Company. Please proceed with your question.

Joe Giordano

I guess more of a conceptual question. When I think about your China business and I talk about being in an industrial recession there, how do you think about your business over the next decade there? And then trying to maybe - do you try to adapt your exposures to that market as they tried to adapt their markets to be more consumer-oriented?

Andy Silvernail

Well, I think for us, what you'll see in China - the strength that we've had in China in the last decade has really been driven by industrial development in the mega-city centers. Right? So as all kinds of things have been built and all the structure that goes around that, our FMT products, some of our diversified products, that is kind of where that follows.

As you get to more modernization - and I'm going to put modernization into two categories. One is going to be the continued buildout of cities that aren't these mega-city centers. But where population is going to continue to move, is going to continue to urbanize, you're going to see a similar type wave there that I think we will benefit from.

So what that really means is we have got to make sure that we're moving our sales and applications, engineering resources to those parts of the country that are going to see the kind of growth where people are going to be. So that is one.

The second one, as you see the rest of the country modernize, that is where parts of our HST portfolio and our diversified portfolio start to have strength. So, think about, as medicine becomes more and more important, certainly and testing is more readily available, you're going to see our life science business do well there. You are going to see our material process do well there. You're going to see our optics business do well in that world.

And you are also going to see parts of our rescue business do well. So think about fire, think about rescue as you start to see other parts of the country modernize and industrialize. So, it is a nice lifecycle to our portfolio. And over the next decade, I think it is going to be an important thing for IDEX.

Joe Giordano

Yes, I think HST was really what I was getting at. What would you say - think the contribution is from that? In HST, what is China in HST right now? I'm assuming on the life science - part of HST, it is pretty small. Yes.

Andy Silvernail

It is small and it is principally serviced out of the U.S. and Europe, with the sales office in Asia. We're pretty careful around IP and so we have been careful around there. But I do see that growing as a proportion meaningfully over the next decade.

Operator

Our next question comes from the line of Jim Foung of Gabelli & Co. Please proceed with your question.

Jim Foung

So, let me just ask one question. If oil prices start to rebound from these levels and they start pumping again, how quickly would you benefit from that?

Andy Silvernail

I would say it would look a lot like the negative impact that we had it in terms of timing and the upside. Again, we don't have a ton of exposure downhole. And so you've got that kind of 3% or so of our business that really does have that, that would get impacted pretty quickly. So when CapEx spending started getting whacked here last year, that 3% went to 2% pretty quickly. And so I think you would see that come back relatively quickly. But as it played itself through the rest of our business, it would be more of a slow roll, just like it has been a relatively slow roll in the negative side.

Jim Foung

So you would see like maybe six months kind of a timeframe where you would start feeling some impact?

Andy Silvernail

I think that is fair, Jim. But you have got to realize that just getting - the fracking rigs would come on quickly because you have the capacity to do that. But remember, a lot of the capacity that - the fracking stuff came off-line really quickly. The stuff that is coming off-line now is more the offshore stuff that is a heck of a lot harder to get up and going. So, that timeframe - six months is maybe a little too short. Maybe it is six months to a year.

Operator

Our next question comes from the line of Nathan Jones of Stifel. Please proceed with your question.

Nathan Jones

Just a very high-level question. You have guided to flat organic growth for the year. Can you break that down between what you think the markets are going to grow and what you think you are going to outgrow the markets?

Andy Silvernail

At what level of specificity are you looking for, here, Nathan? I'm not sure I understand your question.

Nathan Jones

As specific as you can get. I mean, the overall guidance for the Company is flat organic growth, minus 1% to plus 1%. When you built up that forecast, what was market growth? Was it minus 2% to zero and you are going to outgrow it by a point? Or -

Andy Silvernail

Okay, I got you. That is exactly right. I think our growth rate relative to the market is - we will beat it by a point. So if you look at the overall market growth, we're building our models are somewhere between one and 2 points. So if we're at plus 1%, the markets are a negative 1%. If we're at negative 1%, the markets are probably down 3%.

Operator

There are no further questions in the audio portion of the conference. I would now like to turn the conference back over to Andy Silvernail for closing remarks.

Andy Silvernail

Well, thank you all very much for joining us. I appreciate it. We're all dealing with the realities of the tough industrial world. At the same time, when I look at IDEX and I look at the strength of IDEX and how we hold up in this market place, I think we have done a very, very nice job. And I want to congratulate our teams for operationally delivering from a capital deployment perspective, doing the right things and really investing in the long term of IDEX.

So, look forward to talking to you all again here in 90 days. I appreciate your time. Take care.

Operator

This concludes today's teleconference. Thank you for your participation and you may disconnect your lines at this time.

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